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The Honolulu Advertiser

Posted at 11:55 a.m., Friday, January 6, 2006

Employment data helps extend 2006 rally

Associated Press

NEW YORK — Mixed employment data helped Wall Street extend its New Year's rally today, as investors saw a slowdown in monthly hiring as a precursor to the end of the Federal Reserve's interest rate hikes. The major indexes surged this week, finishing at their highest levels since mid-2001.

Strong advances for Yahoo Inc. and Google Inc. drove the technology sector, building on the market's energetic start to 2006. An upbeat reaction to International Business Machines Corp.'s pension news lifted the Dow Jones industrials within reach of 11,000.

Traders were mostly optimistic about a Labor Department report that employers added 108,000 jobs last month, about half the 200,000 increase forecast by economist and well behind November's 305,000 gain.

The languishing job growth signaled a slowing economy, one reason analysts believe the Fed will soon halt its string of rate increases. But a 0.3 percent jump in hourly wages — topping estimates for a 0.2 percent rise — renewed worries about inflation if that pattern is sustained.

"After the market rallied hard on the Fed minutes earlier this week, the perception had been building that good, but not strong, economic data is positive because that signals the Fed having to raise rates less," said John Caldwell, chief investment strategist for McDonald Financial Group. "It's one of those cases where good news is bad news for the economy."

According to preliminary calculations, the Dow gained 77.16, or 0.71 percent, to 10,959.31. The Dow advanced 165 points through yesterday; the average has not closed above 11,000 since June 7, 2001, before the Sept. 11 attacks.

Broader stock indicators had their best finish since May 2001. The S&P 500 was up 11.97, or 0.94 percent, at 1,285.45, and the Nasdaq climbed 28.75, or 1.26 percent, to 2,305.62.

Bonds were little changed, with the yield on the 10-year Treasury note rising to 4.37 percent from 4.36 percent yesteday. The dollar was mixed against most major currencies, while gold prices drifted lower.

A spike in crude futures did little to stop the market's momentum, further expanding this week's gains as political uncertainty in the Middle East sent jitters through the energy market. A barrel of light crude added $1.42 to settle at $64.21 on the New York Mercantile Exchange.

Stocks raced out of the starting gates this week, with the major indexes each gaining more than 2 percent in the first four sessions of 2006. Much of the advance was fueled by the Fed's latest report on Tuesday, launching the Dow up 130 points.

For the week, the Dow gained 2.26 percent, the S&P 500 jumped 4.55 percent and the Nasdaq rose 2.98 percent.

Aside from hopes that moderating economic growth will cause the Fed to be more cautious about its monetary policy, Today's employment data also provided evidence that the nation's work force is returning to average growth rates, said Christopher Piros, director of investment strategy for Prudential's Strategic Investment Research Group.

"If we are just at trend growth, essentially we're never going to get back the jobs we've lost in the last five years," Piros said, "but we're no longer losing ground."

But Piros also noted a drop in construction hiring last month, another ominous sign for a housing market already headed for a downslide as mortgage rates rebound from almost two years of all-time lows.

MDC Holdings Inc. and Brookfield Homes Corp. reinforced those concerns today after the homebuilders reported a sharp dropoff in orders during the fourth quarter, pulling down most of the sector. MDC sank $1.59 to $64.50 and Brookfield lost $1.48 to $49.82, while D.R. Horton Inc. dropped 12 cents to $37.25 and Pulte Homes Inc. fell 20 cents to $41.62.

IBM announced plans to freeze its $48 billion pension fund in 2008 and instead boost its contributions to employee 401(k) retirement plans. Echoing the airline industry's woes, IBM said hefty pension costs weigh on its ability to compete with younger rivals. IBM added $2.45 to finish at $84.95.

Electronics retailers Best Buy Co. and Circuit City Stores Inc. both reported sturdy December revenue gains. Best Buy said late shoppers and higher average receipts drove a 5.8 percent rise in sales at stores open at least a year — or same-store sales — with overall sales adding 12 percent.

Meanwhile, rival Circuit City pointed to strong flat-panel television demand for its 11.1 percent monthly same-store sales growth and 12.1 percent jump in revenue. Best Buy gained $3.55 to $47.05, and Circuit City rose 15 cents to $22.94.

Citing stronger growth expectations for search advertising, Goldman Sachs raised Yahoo's earnings targets, sending shares climbing $1.68 to $43.21. Goldman Sachs also pegged a $500 price target for Google, which rose $14.42 to $465.66.

EMC Corp., a maker of data storage devices, sank 25 cents to $13.73 after saying it will slash 1,000 jobs and take a series of charges that will whittle down its fourth-quarter profit. However, EMC said it is adding other positions and its work force should grow by the end of this year.

Advancing issues outpaced decliners by more than 3 to 1 on the New York Stock Exchange, where volume of 1.78 billion shares lagged the 1.79 billion shares that changed hands yesterday.

The Russell 2000 index of smaller companies rose 7.62, or 1.1 percent, to 699.39.

Overseas, Japan's Nikkei stock average rose 0.02 percent. Britain's FTSE 100 surgey 0.71 percent, Germany's DAX index added 0.36 percent, and France's CAC-40 was higher by 0.66 percent.